F581/ F582 Economics June 2013

Any other calculations that could come up? i always lose marks here

D you think anything with the marshal learner condition or the j curve effect will come up?


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they dont expect you to know this at AS but you can quote it

oh I see now! for some reason I was intersecting AD not properly on the Vertical part. So as its more harmful at full capacity, would that be an increase in the negative output gap right? Thank you so much for replying, your explanation was very clear!

OK for those stressing - here's a nice little Plan for the infamous essay " Discuss whether a current account deficit is always harmful " :

Introduction - provide a general understanding of the current account , what a deficit means and then answer whether you think its harmful or not ( that last bit ain't necessary though )

Analysis for why a Current Account deficit IS harmful :

- loss in international competitveness
- may cause a reduction of investment into the country
- linking in with the top point , Aggregate Demand reduces in the economy
- this leads to a reduction in real national output and an increase in unemployment ( however it does reduce inflation )
- causes a fall in the exchange rate
- causes increased debt for the country
- provides indicator of structural problems in the economy

LRAS DIAGRAM REPRESENTING REDUCTION IN AGGREGATE DEMAND

EVALUATION :

- depends on size of deficit - especially as a percentage of GDP , as if its small its likely to be self-correcting and the country can easily solve it if its a small percentage of GDP
- depends on duration of deficit , if its been going on for ages it shouldn't cause a lot of problems
- depends on whether the country is undergoing a massive surplus from the capital and financial accounts which is offsetting the deficit
- depends on the level of economic activity in the economy at the time as to whether the reduction in AD caused by the deficit will be very harmful or not

Conclusion :

mention whether you think its harmful or not in the short run and whether its harmful or not in the long run - cannot really think of what else to put in for the conclusion !

Hope this helps !

So long as it isnt Balance of Payments or Current Accounts I will be fine. Let me pray that it isnt.

So long as it isnt Balance of Payments or Current Accounts I will be fine. Let me pray that it isnt.

Is it likely??

- loss in international competitveness
- causes a fall in the exchange rate
- causes increased debt for the country

I would prepare myself for any type of question they may throw. As soon as I open that paper, i will look at the last question and if i see the word Balance of Payments I will be encouraged to OWN the questions before that one

Is it likely??

Can you explain why this is bad for the economy?

And also for a Eval point, could you talk about how it may indicated higher domestic incomes?

Many Thanks